Vietnam emerges as a compelling alternative to China for manufacturers seeking lower costs and reduced geopolitical risks. With lower tariffs, rising production capabilities, and a growing reputation for quality, Vietnam aligns with the China + 1 strategy. However, navigating the Vietnamese market requires careful consideration, including due diligence on suppliers and understanding local regulations. MES offers expert guidance and support for manufacturers considering sourcing in Vietnam, leveraging their deep understanding of the market and commitment to developing supplier relationships.
Lewis Center, Ohio, Oct. 14, 2024 /PRNewswire-PRWeb/ -- Vietnam is a lot of things. It's one of the most beautiful places on the planet. It's a socialist republic. And it's a resource of lower-cost labor that is conveniently located along the major trade routes.
What Vietnam is not, however, may be most important of all: Vietnam is not China.
That can be a good thing for manufacturers concerned about the rising costs and geopolitical issues with China, not to mention China's notoriously high tariffs. In fact, according to CNBC, 66.4% of all U.S. imports are under tariff with the average tariff being 19.3%. Vietnam's tariffs, on the other hand, have steadily declined and as of early 2024 are below the 15% mark.
Interestingly, according to the U.S. Census Bureau, China has ceased to be the number one exporter to the U.S. Vietnam exports, on the other hand, continue to trend significantly upward.
Vietnam as a sourcing strategy: Yay or nay?
"Taking production to Vietnam might be a good move," says sourcing expert Randy Rhodes, MES Vice President of Sourcing, Transportation, Quality Engineering and Ohio Operations. "Then again, it might not. For manufacturers looking to source production in places other than China, there are plenty of options, including Vietnam, India, and Mexico."
Forgoing China altogether is just one of many possible sourcing strategies. Another is to diversify the supply chain through dual sourcing, in which China and Vietnam are in the mix.
Another is minimalism or downsizing the supplier pool. This is a viable option for manufacturers looking to reduce both the costs and hassle of managing too many suppliers.
"Like everything else in supply chain, there is no one-size-fits-all solution," says Rhodes. "The bottom line is that for some manufacturers, sourcing Vietnam may be a better option than sourcing China. For others, China is still a better go-to."
China + 1 Strategy: A Powerful Reason to Consider Vietnam
Beyond the cost benefits and geographical convenience, Vietnam's growing importance is fueled by the China + 1 strategy. This strategy is a global trend where businesses are deliberately diversifying their supply chains by moving away from a sole reliance on China. This is driven by several factors:
- Rising Costs in China: Labor costs in China have been steadily increasing, making Vietnam with its lower wages a more economical option.
- Geopolitical Tensions: Trade tensions and political uncertainty between the US and China can disrupt supply chains. Vietnam offers political stability and a more neutral ground.
- Tariff Considerations: Vietnam has free trade agreements with many countries, including the US, leading to lower tariffs compared to China's tariffs.
By incorporating Vietnam into your sourcing strategy, you're aligning yourself with the China + 1 approach. This reduces your dependence on a single source and mitigates risks associated with geopolitical issues or trade wars. Whether you choose dual sourcing with China or switch entirely to Vietnam depends on your specific needs and risk tolerance.
Does Vietnam really offer low-cost, high production for manufacturers?
Without question, Vietnam has experienced phenomenal growth in the manufacturing sector. In fact, according to global consulting firm McKinsey & Company, manufacturing accounts for better than 20% of Vietnam's gross domestic product (GDP).
This is due, in part, to the fact that like China, Vietnam can beat domestic manufacturing prices. Because Vietnam's located about as far away from North America as China, shipping times and costs are typically on par with each other.
Unlike China, though, Vietnam's labor costs are remarkably low—at least for the moment. Vietnam's National Wage Council voted to increase Vietnam's minimum wage by 6% starting July 2024. "The truth is, Vietnam is not a magic place," says Rhodes. "What it does, however, is give manufacturers an alternative to China."
3 things to know before sourcing Vietnam
For manufacturers who find the ease of doing business in Vietnam and the possibility of reducing their capital investment attractive, Rhodes offers this practical advice:
1. Ask for help: Find someone who can help you move about the country and manage the many details of sourcing suppliers from Vietnam. "Anyone can do a Google search, but those results don't mean anything—especially when compared to going there yourself or having somebody that can help you find what you're looking for. In China there are plenty of English-speaking people, maps, and street signs, to help. Not so in Vietnam. For those outside the country, Vietnam can be challenging to navigate solo."
2. Carry out due diligence: Thoroughly investigate and evaluate potential Vietnamese suppliers and their opportunities. Keep in mind that if it's too-good-to-be-true, it probably is. "Remember, Vietnam is a communist country where government regulations are unique. You want to make sure that you source a supplier in Vietnam that can export your specific manufactured goods. Also, before signing any contract, make sure you have a full understanding of the supplier's experience, reputation, finances, and quality control, along with knowledge of the country's customs regulations, standards for trade, compliance, etc."
3. Know what you're looking for: Don't settle for just any supplier. Instead, get very clear about your expectations to ensure that the supplier can deliver on your definition of success.
"Anyone can select a supplier, but it's developing them that makes the real difference. At MES, we're known for our boots-on-the-ground approach. Of course, there's more to it than just having a presence. To be successful, it's crucial to have to have the right people in-country. For example, our Metrics Vietnam location is under the direction of an outstanding general manager, Vo Anh Trin. She's masterful at overseeing our confirmation process, which requires our origin teams to inspect and authenticate everything."
Need help moving production to Vietnam?
As part of MES's commitment to creating a win-win for the customer, we do more than select suppliers, we develop them.
"That's one of the advantages of partnering with MES for Vietnam sourcing," says Rhodes. "We find small- to mid-size, family-owned suppliers with proven quality and good processes, then we develop their capabilities, elevate their processes, and align their production quality with our high standards."
MES currently has 599 suppliers across nine commodities and we're growing. To learn more about sourcing Vietnam, reach out to us today.
More resources for sourcing Vietnam
- MESH Works, a revolutionary digital platform that helps you find suppliers, manage RFQs, and streamline APQP
- 3 Signs It's Time to Optimize Your Supplier Relationship Management Process
- 6 Reasons Near-Sourcing Is NOT a Sustainable Solution
- Benefits of a Global Supplier Network
Media Contact
Zach Hamner, MES Inc, 6142904142, [email protected], www.mesinc.net
SOURCE MES Inc
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